Abstract: Eukaryotic cells activate the unfolded-protein response (UPR) upon endoplasmic reticulum (ER) stress, where the stress is assumed to be the accumulation of unfolded proteins in the ER. Consistent with previous in vitro studies of the ER-luminal domain of the mutant UPR initiator Ire1, our study show its association with a model unfolded protein in yeast cells. An Ire1 luminal domain mutation that compromises Ire1's unfolded-protein-associating ability weakens its ability to respond to stress stimuli, likely resulting in the accumulation of unfolded proteins in the ER. In contrast, this mutant was activated like wild-type Ire1 by depletion of the membrane lipid component inositol or by deletion of genes involved in lipid homeostasis. Another Ire1 mutant lacking the authentic luminal domain was up-regulated by inositol depletion as strongly as wild-type Ire1. We therefore conclude that the cytosolic (or transmembrane) domain of Ire1 senses membrane aberrancy, while, as proposed previously, unfolded proteins accumulating in the ER interact with and activate Ire1.